REPORT TITLE:
Condominium; Leasehold


DESCRIPTION:
Establishes a fair market value standard (FMVS) for appraising
the leased fee interest of condo and co-op housing corp. for
leases that do not specify an appraisal standard and for leases
on or after effective date of this Act; allows FMVS if lessor and
lessee agree for leases prior to date of this Act.  (SB876 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        876
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO RESIDENTIAL LEASE-TO-FEE CONVERSION.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that a standard is needed
 
 2 to clarify the conditions in which a fee simple owner offers a
 
 3 leased fee interest in a condominium or cooperative housing
 
 4 corporation to be purchased by a lessee.  The appraisal of these
 
 5 properties should be based on their fair market value to ensure
 
 6 equity and fairness in the process.
 
 7      One method to accomplish this purpose would be to first
 
 8 calculate the fair market value of the real property.  After
 
 9 determining the total interest of the fee owner, this percentage
 
10 of the property would be assigned to determine proportionate
 
11 percentages of ownership between the fee owner and the lessee.
 
12      The purpose of this Act is to establish a fair market value
 
13 standard for determining the value of the leased fee interest to
 
14 be purchased by a lessee.
 
15      SECTION 2. Chapter 514A, Hawaii Revised Statutes, is amended
 
16 by adding a new section to be appropriately designated and to
 
17 read as follows:
 
18      "§514A-     Appraisal method for condominium lease-to-fee
 
19 conversion.  (a)  All condominium leases, including subleases,
 

 
Page 2                                                     876
                                     S.B. NO.           S.D. 2
                                                        H.D. 1
                                                        

 
 1 executed prior to the effective date of this Act, that establish
 
 2 within the lease or sublease an appraisal method for determining
 
 3 the value of the lease-to-fee conversion, may use the following
 
 4 fair market value conversion appraisal method to compute the
 
 5 value of a lease-to-fee conversion:
 
 6      (1)  A qualified real estate appraiser shall complete a
 
 7           leased fee analysis of the property to determine the
 
 8           fair market value of the property;
 
 9      (2)  The fee owner's total interest in the property shall be
 
10           calculated;
 
11      (3)  After determining the total interest of the fee owner,
 
12           this percentage of the property shall be assigned to
 
13           determine proportionate percentages of ownership
 
14           between the fee owner and the lessee; and
 
15      (4)  The amount for the lease-to-fee conversion shall then
 
16           be calculated based on the percentages set forth in
 
17           paragraph (3);
 
18 so long as all parties to the lease agree to the use of this
 
19 method.
 
20      (b)  All condominium leases, including subleases, executed:
 
21      (1)  On or subsequent to this Act; or
 

 
 
 
 
 
Page 3                                                     876
                                     S.B. NO.           S.D. 2
                                                        H.D. 1
                                                        

 
 1      (2)  Prior to this Act that do not specify an appraisal
 
 2           method in the lease;
 
 3 shall use the fair market value conversion appraisal method set
 
 4 forth in subsection (a) to compute the value of a lease-to-fee
 
 5 conversion.
 
 6      (c)  For purposes of this section:
 
 7      "Fair market value" means that amount of money that a
 
 8 purchaser willing, but not obliged, to buy an interest in land
 
 9 would pay an owner willing, but not obliged, to sell it, taking
 
10 into consideration all uses to which the land is adapted or might
 
11 in reason be applied.
 
12      "Lease" or "sublease" means a conveyance of land or an
 
13 interest in land, by a fee simple owner as lessor, or by a lessee
 
14 or sublessee as sublessor, to any person, in consideration of a
 
15 return of rent or other recompense, for a term, measured from the
 
16 initial date of the lease or sublease, of twenty years or more,
 
17 including any periods for which the lease may be extended or
 
18 renewed at the option of the lessee.
 
19      "Lessee" means any person to whom land is leased or
 
20 subleased, and the lessee's heirs, successors, legal
 
21 representatives, and assigns.
 

 
 
 
 
 
Page 4                                                     876
                                     S.B. NO.           S.D. 2
                                                        H.D. 1
                                                        

 
 1      (d)  This section shall not apply to lease-to-fee conversion
 
 2 through condemnation."
 
 3      SECTION 3.  Chapter 519, Hawaii Revised Statutes, is amended
 
 4 by adding a new section to be appropriately designated and to
 
 5 read as follows:
 
 6      "§519-     Appraisal method for cooperative housing
 
 7 corporation lease-to-fee conversion.  (a)  All leases, including
 
 8 subleases executed by a cooperative housing corporation as
 
 9 lessee, and subleases acquired by a cooperative housing
 
10 corporation by assignment, executed prior to the effective date
 
11 of this Act, that establish within the lease or sublease an
 
12 appraisal method for determining the value of the lease-to-fee
 
13 conversion, may use the following fair market value conversion
 
14 appraisal method to compute the value of a lease-to-fee
 
15 conversion:
 
16      (1)  A qualified real estate appraiser shall complete a
 
17           leased fee analysis of the property to determine the
 
18           fair market value of the property;
 
19      (2)  The fee owner's total interest in the property shall be
 
20           calculated;
 
21      (3)  After determining the total interest of the fee owner,
 
22           this percentage of the property shall be assigned to
 

 
 
 
Page 5                                                     876
                                     S.B. NO.           S.D. 2
                                                        H.D. 1
                                                        

 
 1           determine proportionate percentages of ownership
 
 2           between the fee owner and the lessee; and
 
 3      (4)  The amount for the lease-to-fee conversion shall then
 
 4           be calculated based on the percentages set forth in
 
 5           paragraph (3);
 
 6 so long as all parties to the lease agree to the use of this
 
 7 method.
 
 8      (b)  All leases, including subleases executed by a
 
 9 cooperative housing corporation as lessee and subleases acquired
 
10 by a cooperative housing corporation by assignment executed: 
 
11      (1)  On or subsequent to this Act; or 
 
12      (2)  Prior to this Act that do not specify an appraisal
 
13           method in the lease;
 
14 shall use the fair market value conversion appraisal method set
 
15 forth in subsection (a) to compute the value of a lease-to-fee
 
16 conversion.
 
17      (c)  For purposes of this section:
 
18      "Cooperative housing corporation" has the meaning set forth
 
19 in section 519-3(d).
 
20      "Fair market value" means that amount of money that a
 
21 purchaser willing, but not obliged, to buy an interest in land
 
22 would pay an owner willing, but not obliged, to sell it, taking
 

 
 
 
Page 6                                                     876
                                     S.B. NO.           S.D. 2
                                                        H.D. 1
                                                        

 
 1 into consideration all uses to which the land is adapted or might
 
 2 in reason be applied.
 
 3      "Lease" or "sublease" means a conveyance of land or an
 
 4 interest in land, by a fee simple owner as lessor, or by a lessee
 
 5 or sublessee as sublessor, to any person, in consideration of a
 
 6 return of rent or other recompense, for a term, measured from the
 
 7 initial date of the lease or sublease, of twenty years or more,
 
 8 including any periods for which the lease may be extended or
 
 9 renewed at the option of the lessee.
 
10      "Lessee" means any person to whom land is leased or
 
11 subleased, and the lessee's heirs, successors, legal
 
12 representatives, and assigns.
 
13      (d)  This section shall not apply to lease-to-fee conversion
 
14 through condemnation."
 
15      SECTION 4.  New statutory material is underscored.
 
16      SECTION 5.  This Act shall take effect upon its approval.